China’s shot across Canada’s bow is splashing alarmingly close to U.S. farmers.
“We’re in the same boat,” said Barry Coleman, executive director of the Northern Canola Growers Association. “It’s not a situation where the Canadian grower is getting less than the U.S. grower. They’re both affected the same.”
Why it matters: Canadian canola growers see history repeat as an announced Chinese anti-dumping investigation affects prices.
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Canadian canola futures on the ICE exchange tanked when news broke Sept. 3 that China was launching an anti-dumping investigation into Canadian canola. Prices were quickly limit-down, although the November contract stabilized above $570 after falling from $620.
The United States is not targeted in China’s investigation, but U.S. elevator prices instantly reflected the futures selloff. When it comes to canola, whatever affects Canadian values affects U.S. values, and vice versa.
“It was the exact same thing. Prices were down the same,” said Coleman.
The reality of canola seed, canola oil and canola meal is that, like most bulk commodities, individual markets can be interrupted but global supply and demand are fluid. If one source is blocked, the commodity tends to flow to the next easiest place.
“People need to remember this has happened in the past,” said Jeff Nielsen, a central Alberta farmer with much experience watching international market disruptions from inside farm organizations such as Grain Growers of Canada and the Alberta Barley Commission.
Many farmers remember the dispute with China following the arrest of Huawei executive Meng Wanzhou in late 2018. Within months, Viterra and Richardson were blocked from selling to China, severely reducing Canada’s sales to that country for years. The Canola Council of Canada estimates it cost Canada’s canola industry $1.54 to $2.35 billion.
However, Canadian canola flowed to other markets, so after being discounted during the dispute, it moved back to China at market prices soon after the dispute was resolved.
Nielsen said many other countries have these sorts of issues. Canada lost most of the Saudi Arabian barley market in 2018 after the Canadian government criticized the Saudi government’s treatment of political dissidents. Australia lost Chinese barley sales after offending the Chinese government. Barley flow simply shifted.
As LeftField Commodity Research noted in a report, “it’s no coincidence that Canadian barley exports jumped during this period as it overlapped with China’s excessive tariff rate on Australian barley.”
Australia’s barley exports fell to zero, but “overall Australia’s exports didn’t suffer and movement picked up to other destinations, such as Saudi Arabia, Japan, Vietnam and Thailand. Following the tariff enactment, China began swiftly scooping up Canadian barley to fill the gap.”
The Australia-China dispute was resolved in August 2023 and Australia’s exports resumed, pushing Canada back to its traditional share of the market.
Other markets get blocked for various reasons. India is infamous for import restrictions when its government feels domestic prices are too low, which can leave many Canadian pulse crops suddenly seeking new homes.
The precise impact of a foreign border blockage on western Canadian prices is impossible to gauge, said broker David Derwin of Ventum Financial in Winnipeg.
“How do you figure that out when there’s 14 other factors?” said Derwin. “It’s not just a canola story.”
For instance, he said, the China news seemed to knock down canola by seven per cent, which is a lot. However, that same day most other associated commodities, such as soybean oil and crude oil, fell about four per cent. A net three per cent drop on the news isn’t gigantic.
China has previously restricted Canadian canola sales and only allowed southern ports to be used for a few years due to what it claimed was a concern about Canadian blackleg spread to China’s canola-growing regions in the north.
Sometimes Canadian canola ends up in China despite restrictions, flowing along meandering routes through the Persian Gulf and other third party provider regions. That comes at a discount to Canadian canola because the extra transportation reduces the farm gate price. However, like most commodities, where there is demand, supply will find a way.
Nielsen said Canadian farmers shouldn’t panic. The canola industry is much more developed than it was in 2018. Major new crushing capacity has been built, with more coming. Canola exports are more segmented today and there is huge North American demand for biofuel stocks.
China doesn’t have the same hammerlock on Canadian exports as it once did.
“We’ve changed a lot in the last five years,” said Nielsen.
